Hong Kong authorities weaken currency to maintain price cap

THE HONG KONG Monetary Authority (HKMA) sold off domestic dollars in an effort to weaken the currency on Friday after the Hong Kong dollar appreciated strongly.

It is the first time in almost three years that the HKMA has had to step in to defend its currency cap, which allows the currency to trade at between 7.75 and 8.85 to the US dollar.

And as the currency hit 7.75 to the US dollar on Friday, the authority had to step in if it was to keep its policy intact.

To force the currency down and maintain the cap, the authority sold $603m (£376.7m) worth of Hong Kong dollars, thus weakening the currency.

“The recent increase in demand for the local currency is related to a less strained European market, weakness in the US dollar and declining US interest rates, which have prompted capital inflows into currency and equity markets in the region,” explained an HKMA spokesman.